Morning Bell: America Needs More Job Creation

Mike Brownfield /
December 02, 2011

After months upon months of unemployment stuck at or above 9 percent, the American people may finally see a sliver of relief in today’s jobs report from the Department of Labor. The report suggests the month of November saw 120,000 net new jobs created and the unemployment rate drop to 8.6 percent–driven in part by the 315,000 people who have given up looking for work and were no longer counted as unemployed. That news is cold comfort to the 13.3 million Americans who are still out of work and the 402,000 workers who filed for unemployment last week.

The question is whether this improvement is real and enduring or a fluke. The economy is growing, but there’s little evidence of the real strength the report suggests, and there’s a lot in the report to suggest something’s amiss with the numbers–something likely to be corrected in the next report. For example, is it likely the labor market strengthened as much as the job number suggests at the same time so many people abandoned the workforce? And this is only one of the anomalies in the report.

The White House would therefore be wise to trumpet today’s news with soft notes. The fact remains that under President Barack Obama’s watch, the U.S. unemployment rate remains high because America just isn’t creating enough new jobs. And if the only way the Obama Administration can get the unemployment rate to drop is by convincing people to quit looking for work, that’s bad news for the American economy. Or to quote liberal blogger Matt Yglesias, “Decreasing unemployment by shrinking the labor force is not exactly winning the future.”

It goes without saying that if the U.S. economy loses more jobs than it creates, the unemployment rate goes up. If job losses are low but few new jobs are created, then the unemployment rate treads water and remains high, with occasional dips and rises–and that’s what we’re seeing today.

As Heritage’s James Sherk writes, in the last quarter of 2007, private employers created 7.6 million jobs and shed 7.4 million jobs. That was enough net new jobs to keep unemployment steady as new workers entered the labor force. During the recession, job losses increased, hitting 8.5 million jobs lost in the first quarter of 2009. The good news is that today, job losses are well below their pre-recession rates, hitting a record low in the first quarter of 2011. The bad news is that few new jobs are being created, leaving America in the economic doldrums. Sherk explains:

Unemployment remains high because job creation has fallen. From the recession’s onset to the first quarter of 2009, private job creation fell by 24 percent to 5.8 million jobs. That was the lowest quarterly job creation on record. Since then, job creation has only slightly recovered. In the first quarter of 2011, employers created just 6.3 million new jobs–1.3 million fewer jobs than in the quarters before the recession began.

Fewer existing businesses are expanding, while fewer entrepreneurs are starting new businesses. In the first quarter of 2011, the number of workers hired in new business establishments fell to just 660,000, 27 percent fewer than when the recession began. This is the lowest number of workers hired at new businesses that the [Bureau of Labor Statistics] has ever recorded–lower even than the worst points of the recession.

To underscore just how important private-sector job creation is to getting America back on track, Sherk studied what would happen if hiring had returned to pre-recession levels when the recession ended in 2009. The result: By this year, net employment would have fully recovered. Unfortunately, that alternate reality is not our reality, and we’re living in an America where jobs are not being created at a fast enough rate. And the root of that problem is, in part, a White House that believes it knows best when it comes to job creation.

It’s small businesses, entrepreneurs, and investors, though, who create new jobs, and the best that Washington can do is create an environment where their enterprises can flourish. The way to do that is not by growing government, raising taxes on job creators, and imposing unnecessary regulations that overburden businesses. Instead, the government should pursue lower taxation, fiscal responsibility, and entitlement reform to increase the return and reduce the risks of starting or expanding an enterprise.

It’s always good news when new jobs are created and when the unemployment rate goes down, but when more than 13 million Americans remain out of work, there is no cause for celebration, especially when Washington is threatening policies that will keep the economy moving at a snail’s pace.

British Foreign Secretary William Hague has ordered diplomats working at the Iranian embassy in London to leave the country by Friday afternoon following Tuesday’s attack on the British embassy in Tehran.

LUNCHTIME CHAT: Join us today from 12 to 1 p.m. ET for a web chat on the “super committee” with Heritage’s Director of Economic Policy Studies Alison Fraser. She will take your questions about why the committee failed and Congress’s next steps.